Berlusconi's return to Italian politics worries markets | Japan plans European bond buying to weaken yen | AIG reportedly considering $25B lawsuit against U.S.
08 January 2013
CFA Institute: Financial NewsBrief

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U.S. could default on debt as soon as Feb. 15, analysis shows
The U.S. government will run out of money to pay its bills sometime between Feb. 15 and March 1, according to a Bipartisan Policy Center analysis. On Dec. 31, the U.S. reached the debt limit established by law, but the Treasury Department says it is implementing "extraordinary measures" that could delay default for the first two months of 2013. The Washington Post (tiered subscription model) (07 Jan.), Forbes (07 Jan.), The Hill/On The Money blog (07 Jan.)
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Berlusconi's return to Italian politics worries markets
Fear that former Italian Prime Minister Silvio Berlusconi will recover some of his influence in an upcoming election and disrupt financial reform is showing up in markets. The yield on Italy's 10-year bond increased 0.09 percentage point Monday, hitting 4.35%. During the past year, the yield had declined 2.8 percentage points. The Globe and Mail (Toronto) (tiered subscription model) (08 Jan.), Bloomberg (07 Jan.), (France) (07 Jan.)
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Japan plans European bond buying to weaken yen
Aiming to weaken the yen and help Europe, Japanese Finance Minister Taro Aso said the government will use foreign exchange reserves to buy bonds sold by the European Stability Mechanism, as well as other sovereign debt denominated in the euro. "The financial stability of Europe will help the stability of foreign exchange rates, including the yen," he said. Bloomberg (08 Jan.), Reuters (08 Jan.)
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AIG reportedly considering $25B lawsuit against U.S.
The board of American International Group will consider whether to bring a $25 billion lawsuit against the U.S. government, according to court records. The lawsuit would argue that the terms of AIG's financial rescue were heavy-handed and deprived shareholders of tens of billions of dollars. The New York Times (free-article access for SmartBrief readers)/DealBook blog (07 Jan.)
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Banks settle mortgage-related legal disputes
Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and other major banks agreed to pay a total of $20 billion to settle two legal disputes related to the mortgage crisis. BofA agreed to pay Fannie Mae $11.6 billion. In a separate dispute, 10 lenders agreed to pay more than $8.5 billion over foreclosure practices. The Washington Post (tiered subscription model)/The Associated Press (07 Jan.), Financial Times (tiered subscription model) (07 Jan.), The Wall Street Journal (tiered subscription model) (07 Jan.)
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Market Activity
Asian-Pacific markets decline as traders profit on recent gains
Asian-Pacific markets fell Tuesday as traders cashed in on profit from recent advances and backed away from risk as the U.S. earnings season approaches. Japan's Nikkei 225 and Hong Kong's Hang Seng Index each gave up 0.9%. Taiwan's Taiex and China's Shanghai Composite each slid 0.4%. South Korea's Kospi fell 0.7%. Australia's S&P/ASX 200 lost 0.6%. India's Sensex was up 0.3% at midafternoon. MarketWatch (08 Jan.), The Economic Times (India) (26 Feb.)
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Fed divisions leave investors wondering about stimulus
Widening divisions within the Federal Reserve over whether to continue buying bonds has left investors wondering about the future of the U.S. central bank's stimulus policies. At a recent meeting, some Fed governors leaned toward shutting down bond buying before year-end. CNBC (07 Jan.)
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Rice industry notes China's shift to imports
The rice industry is struggling to figure out the reason China abruptly shifted from being an exporter of rice to a major buyer and what that means for the future. China changed course in 2011 and bought 575,000 tons of rice, and it increased that to 2.6 million tons in 2012, according to the U.S. Agriculture Department. The Wall Street Journal (tiered subscription model) (07 Jan.)
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CMBS' mid-2012 rally continues with great deals for borrowers
Three Wall Street dealers this week are expected to sell $600 million of commercial mortgage-backed securities based on an interest-only, 12-year loan. The transactions reflect the rally in the vehicles that began in mid-2012, which has set the pace for a robust start for issuance in 2013, marked by better terms for borrowers. The Wall Street Journal (tiered subscription model)/Developments blog (07 Jan.)
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IMF economists say they underestimated austerity consequences
International Monetary Fund economists Olivier Blanchard and Daniel Leigh say they incorrectly forecast how much austerity measures in Europe would affect the economy. "Forecasters significantly underestimated the increase in unemployment and the decline in domestic demand associated with fiscal consolidation," according to a paper by the economists. EUObserver (Brussels) (07 Jan.)
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Latin America is key to China's export growth, official says
With demand falling in developed economies, Chinese exporters should focus on sales to Latin America, said Yang Wanming, China's ambassador to Chile. Trade between China and Latin America increased 12% to 15% last year, while trade with other areas remained weak, he said. China Daily (Beijing) (08 Jan.), The Wall Street Journal (tiered subscription model) (08 Jan.)
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Traders expect ECB to hold interest rates
Market participants don't expect the European Central Bank to reduce interest rates this month, but they remain aware that cuts could come farther down the road. Traders' expectations have been tempered after being burned in December. "After the last meeting, we saw the market positioning themselves for one more rate cut into January," said Elwin de Groot, market economist at Rabobank. "Since then, the market has come away from this view, and now it is not so strongly positioned anymore for a near-term cut." Reuters (07 Jan.)
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Analysis: Growth and regulation await corporate investigators
The business of investigating corporations is booming, but the industry's success is likely to bring government regulation, according to The Economist. "Private investigators in Britain face possible regulation in the wake of the News Corporation phone-hacking scandal," the magazine notes. "In America, the [Securities and Exchange Commission] and Congress may tighten rules on investigators and 'knowledge brokers' that work for hedge funds, some of them suspected of abetting insider trading." The Economist (free content) (05 Jan.)
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Advisers breathe easier as estate-tax exemption is solidified
Financial advisers and clients can take time planning gifts to family and charitable causes after Congress made a $5.12 million estate-tax exemption permanent. The "fiscal cliff" compromise essentially preserved favorable treatment for estate and gift tax that has been in effect the past two years. InvestmentNews (free registration) (06 Jan.)
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Reprieve on liquidity buffer could prove costly
The Basel Committee on Banking Supervision's decision to give global banks an additional four years to meet liquidity requirements could prove costly nonetheless, analysts say. Banks will have to reserve more capital as a liquidity buffer with riskier assets, such as bonds backed by home loans. Even so, "it will be the taxpayers picking up the tab when a wrong-way bet by a 'too big to fail' bank turns sour," said Boston University's Cornelius Hurley, a former counsel to the Federal Reserve. Reuters (07 Jan.)
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SEC and CFTC might ease collateral rule for swaps traders
The Securities and Exchange Commission issued a draft rule allowing swaps traders to reduce collateral, and the Commodity Futures Trading Commission might follow suit. The rule, popular among big clearinghouses, would allow portfolio margining, which the SEC says could "alleviate excessive margin calls, improve cash flows and liquidity and reduce volatility." Bloomberg (08 Jan.)
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Former CFTC official Aronow is named SEC general counsel
Geoffrey Aronow, a former enforcement chief for the Commodity Futures Trading Commission, has been tapped as the lead lawyer for the Securities and Exchange Commission. Aronow, a partner at law firm Bingham McCutchen, also has been on disciplinary panels for the Financial Industry Regulatory Authority. Bloomberg (07 Jan.), Reuters (07 Jan.), The Wall Street Journal (tiered subscription model)/Law Blog (07 Jan.)
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Financial Products
2 mutual funds debut from Transamerica
Transamerica introduced two mutual funds in the U.S. The International Small Cap Value fund buys small-cap stocks and aims for long-term total return. The Dividend Focused fund seeks dividend growth and capital appreciation. (07 Jan.)
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